Tax mop-up to digital infra, many positives to cheer up Diwali

It is the festival season, a time when we look at the brighter side of life and spread cheer all around. So, let me look at some of the positives in the economy. 

The inflation is by and large in check thanks to the alacrity of the Reserve Bank of India (RBI) and the central government, especially the finance ministry.  The lower food and commodity prices and sensible policies on imports of crude oil, from Russia in particular, have helped keep the annual rate of inflation hovering around the 6 per cent mark. So, that keeps the interest rates for bank lending around 9-10 per cent for most well-rated borrowers and around 5-6 per cent for most exporters. The RBI has managed the liquidity deftly, reigning in the inflation rate and also maintaining the growth impulses. The growth rate in the first quarter of this financial year was 7.8 per cent and the second quarter may surprise us on the higher side. Many reputed private agencies and global institutions like the International Monetary Fund have raised the growth forecast for the current year for the Indian economy to around 6-6.5 per cent. This is not unremarkable given the context of high inflation and economic slowdown in most developed countries.

The tax collections, and even the non-tax revenues are quite strong, giving the central and state governments more money to spend on infrastructure and social sector projects. The goods and services tax (GST) regime has brought more businesses into the formal sector. 

The increased use of information technology has helped the government plug many leakages and also track down tax evaders. The government is committed to bring down the logistics costs from 14 per cent to around 9 per cent of the price of goods and so, is investing heavily in the road, rail and other transport-related infrastructure. Better implementation is helping quicker completion of such projects, thus minimising unnecessary cost escalations. The digital infrastructure is also quite robust. The domestic consumption is also strong as indicated by high growth in bank retail credit. Domestic tourism has picked up after the Covid-19 pandemic-related disruptions. Generally, the listed companies have posted good results and they have stronger balance sheets with lesser dependence on borrowings than earlier. Banks are better placed to meet the credit demands of the economy. Many structural changes are also taking place.

The export of services has picked up substantially since 2019-20 and the inflows on that account and inward remittances from non-residents have reduced the current account deficit to around 1.3 per cent of the gross domestic product (GDP). The Indian rupee (INR) has exhibited low volatility and orderly movements relative to peers in spite of the elevated US treasury yields and a stronger US dollar. Movements in the INR are consistent with the strength of the underlying macro-fundamentals and the reassuring availability of buffers. The foreign exchange reserves are adequate to cope with unusual volatility and any uncertainty.

There are some anxieties but we can discuss them some other time. For now, let me quote the RBI governor who says: “The Indian economy is forging ahead in a challenging global environment…Our commitment to ensure financial stability reinforces our emphasis on price stability and anchoring of inflation expectations. This would keep inflation risk premium low and improve our competitiveness, productivity and growth potential.”

On that happy note, let me wish the readers a Happy Diwali.

Email: tncrajagopalan@gmail.com